The three year PMAA member effort to educate Members of Congress and the press on the need to stop excessive speculation in the energy commodity market has begun to pay off! This issue is receiving constant attention from the media and from Congress with new bills being introduced on a daily basis.

Gene Guilford argued that petroleum marketers are no longer confident that the energy futures markets are doing their job of providing industry consumers with a benchmark for pricing product that is based off the fundamentals of supply and demand and that the futures markets no longer function as a tool to hedge price risks. He highlighted the problem facing petroleum marketers through their line of credit with banks which it is becoming a burden to secure additional credit to pay for fuel increases. He also informed subcommittee members of PMAA’s Stop Oil Speculators (SOS) public relations campaign.

The panel of independent energy analysts who testified recommended five points that should be addressed in any legislation: (1) require non-commercial investors to meet 50 percent margin requirements, (2) impose position limits on trades which would be established by a panel of commercial traders, (3) require full disclosure by any traders holding U.S. crude oil contracts, (4) prohibit investment banks from owning oil assets, and (5) impose stiff penalties on violators. Almost all who testified argued that crude oil prices should be at least below $100 a barrel and that imposing new rules and regulations on energy traders would lower the price of crude oil within weeks if not days.

On Tuesday, the Senate Homeland Security and Government Affairs Committee held a similar hearing to address speculation. Testifying before the committee were again Michael Masters, Dr. Michael Greenberger, CFTC Acting Chairman Lukken, and NYMEX President James Newsome. New witnesses were William Quinn, Chairman, Committee on Investment of Employee Benefit Assets and Dr. James Angel, Professor, McDonough School of Business, Georgetown University. In his oral testimony, Michael Masters stated that the oil market is experiencing supply and demand pressure plus additional demand for crude oil paper contracts which have distorted futures markets price discovery functions. He also reiterated from prior testimony that if legislation is passed to address excessive speculation, the price of crude oil would drop significantly. NYMEX President and CEO James Newsome said that position limits should be used on all exchanges and that full transparency is needed to ensure orderly markets.

Late yesterday, the House introduced and passed the Energy Markets Emergency Act of 2008. H.R. 6377 directs the CFTC to take emergency action to address excessive speculation, swap transactions, and price distortion in energy markets. The bill’s passage, by an overwhelming majority of 402-19, sends a message to the energy traders that more legislation is to come.

House Democratic leaders hope to bring broader legislation to the floor next month that requires greater transparency and new curbs on speculation by pension funds, big banks and other investors. You will recall that on Tuesday, the House Agriculture Committee announced a markup scheduled for Wednesday that would address speculation in energy commodity markets. However, Chairman Collin Peterson (D-MN) decided to wait until he could hear from members of Congress and energy analysts who have taken a lead on the issue and the markup was cancelled. The bill (H.R. 6334) sponsored by Rep. Bob Etheridge (D-NC) would expand oversight and increase funding and staff levels at the CFTC, but some members of Congress complained that the bill would not go far enough to rein in excessive speculation. The House Agriculture Committee plans on spending more time on the issue once the House returns from July 4 recess. Please review H.R. 6377 here. (pdf file)

Although this is positive news and a strong indication that there could be enough votes on both sides of the aisle to pass a broad bill to fully address excessive speculation in the energy commodity markets, this is the time that we need to go full steam ahead with the PMAA Stop Oil Speculators campaign!

Congress needs to hear from all of us loud and clear that a full and comprehensive solution must be made immediately! Please contact PMAA if you need information about the campaign and how to receive campaign material to distribute at your retail stations.

Senators Richard Durbin (D-IL), Olympia Snowe (R-ME), Herb Kohl (D-WI), and Arlen Specter (R-PA) have sent a letter to Joseph Saunders, Chairman and Chief Executive Officer of Visa Inc., and Robert Selander, President and Chief Executive Officer of MasterCard Worldwide, asking them to provide detailed documentation on the methodology and data that Visa and MasterCard use to set interchange fee rates. Interchange fees are supposed to ensure that issuing banks can cover their costs in processing and authorizing transactions. However, the $42 billion that Visa and MasterCard collected last year has raised concerns in Congress that interchange fees are an enormous profit center through which a variety of marketing and rewards programs are funded.

The Senators requested that Visa and MasterCard provide by June 3 an itemized list of the costs that issuing institutions bear in processing transactions made with Visa and MasterCard cards. The letter also asks for data on the amount of costs per transaction and for information on activities paid for by interchange fees.

The Commodity Futures Trading Commission (CFTC) announced yesterday that it is taking several steps to address the skyrocketing price of crude oil. Among them was the announcement that the CFTC is six months into an investigation of crude oil trading. In addition to the ongoing investigation, the CFTC said it has reached agreements with British and European regulators that would bring transparency to trading activity regulated by authorities overseas.

This announcement follows intense pressure from Congress on the CFTC to increase oversight and bring transparency to unregulated markets.

Yesterday, the Senate Homeland Security and Governmental Affairs Committee held a hearing on institutional investor influence on commodity prices. In her opening statement, Ranking Member Susan Collins (R-ME) mentioned that she met last week with a PMAA member who is concerned about current futures market activities. PMAA members were in Washington DC last week and visited over 70 Senate offices and 300 House offices to express concern about excessive speculation in the futures market. Sen. Collins quoted: “He’s telling customers to expect home heating oil to rise to $4.50 a gallon next winter. He also said that an elderly customer was forced to hand over half of her Social Security check for her budget-payment plan.” The Ranking Member stated that something is deeply wrong with commodity markets and Congress should take necessary steps to address the price volatility seen over the last several months. Testifying before the committee were: Jeffrey Harris, Chief Economist, Commodity Futures Trading Commission; Michael Masters, Masters Capital Management, LLC; Thomas Erickson, Commodities Markets Council; Dr. Benn Steil, Council on Foreign Relations; and Tom Buis, National Farmers Union.

Committee members were intrigued by the testimony of Michael Masters who had a compelling argument that institutional investors are driving commodity prices to excessive levels. He argued that institutional investors park money in commodity markets (holding long positions meaning that they expect prices to go up) and are not leaving the market anytime soon. This in effect has led to dramatic price increases in all commodities especially crude oil. Masters stated that institutional speculators provide no benefit to the futures markets and recommended that Congress modify the Employee Retirement Income Security Act (ERISA) regulations to prohibit commodity index investing strategies. He also recommended that the CFTC reclassify all the positions of commercial traders to distinguish between positions held by physical hedgers and more passive institutional investors. Finally, he asked that Congress close the “swaps loophole” which allows institutional investors an exemption from speculative position limits when they hedge “over-the-counter” swaps transactions.

Following the hearing, Chairman Lieberman (D-CT) said he was convinced that institutional investors are driving energy costs to excessive levels and that Congress must step up its level of oversight on commodity speculation. In Sen. Lieberman’s opening statement, he stated that between 1998-2008, long positions in commodity markets grew from one-quarter to two-thirds while actual physical traders decreased from three-quarters to just one-third.

The House approved legislation (H.R. 6074) by a bipartisan vote of 324-84 that would outlaw price manipulation by the oil-producing cartel. The No Oil Producing and Exporting Cartels Act of 2008 (NOPEC), which was introduced by Representative Steve Kagen (D-WI) last Thursday, May 15, would also create a Department of Justice Petroleum Industry Antitrust Task Force which would develop and coordinate the implementation of investigative and enforcement policies of the Justice Department related to petroleum industry antitrust issues.

The Task Force would examine issues related to antitrust laws, including, gouging in sales of gasoline, collusive behavior in restricting petroleum refinery capacity and the existence of manipulation by refiners or “other wholesalers” of gasoline to retailers. Much of this language is similar to the anti-manipulation language that passed in the Energy Independence Security Act last December. The task force would also determine the existence and effects of any anticompetitive manipulation in the futures markets.

Though the bill passed by a wide margin, House Minority Whip Roy Blunt (R-MO) said that the NOPEC bill is “meaningless,” and Republicans voted for the bill because they didn’t want to return home and have to explain to their constituents why they voted against it. The Senate is expected to vote on the legislation after the Memorial Day recess, but it is expected that the bill will not receive the necessary 60 votes to defeat a Republican filibuster. The President has vowed to veto the NOPEC bill if it should ever pass Congress.

High gasoline and diesel prices have been the main topic of discussion for Congress this week. Presidential candidates have also been partaking in the debate with Senators John McCain (R-AZ) and Hillary Clinton (D-NY) advocating a tax holiday over the summer months. The Congressional Research Service (CRS) also issued an assessment on gas prices which outlines previous attempts by Congress to address the issues. PMAA is reviewing the CRS report in detail.

On the issue of futures market reform, numerous Members of Congress and separately Senate Republicans have discussed the issue this week and some may introduce new legislation. Senate Democrats are working on gas price legislation and Senator Dorgan (D-ND) has been advocating an increase in margin requirements for speculators. Sen. Dorgan is also working to include an amendment to the Federal Aviation Administration Reauthorization bill (H.R. 2881) that would halt all oil deliveries to the Strategic Petroleum Reserve (SPR) until the price of oil falls below $75 a barrel. Senator John Barrasso (R-WY) has also introduced his own bill, S.2927, to halt oil deliveries to the SPR. While Senator Dorgan’s (D-ND) proposal incorporates a price trigger on halting deliveries to the SPR, Republicans are proposing a six month freeze on deliveries to the SPR without a price trigger. It is not yet known if the Democrats will support the Republican proposal.

Senator James Inhofe (R-OK), ranking minority member of the Senate Environment and Public Works Committee, is voicing his concern that the Renewable Fuel Standard (RFS) has driven food prices to unprecedented levels. He has proposed that the Environmental Protection Agency (EPA) should use its authority to waive all or portions of the RFS mandates as part of its rulemaking process. Senator Kay Bailey Hutchison (R-TX) who chairs the Republican Policy Committee, announced plans to introduce legislation to stop national biofuel production at current levels for 2008.

Meanwhile, it looks like the Farm Bill will get another two week extension. Lawmakers are close to an agreement, but need time to make some adjustments to farm subsidy caps. House Agriculture Chairman Collin Peterson (D-MN) said that the House and Senate intend to make substantial cuts to farm subsidy caps and will have the votes necessary to override a veto. House Majority Leader Steny Hoyer (D-MD) said that he expects the House to take up the final version of the bill next week.